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Philip Morris SÀRL v. Uruguay [Uruguay] [July 08, 2016]

In February 2010, three subsidiary companies of Philip Morris International (PMI) initiated an investment arbitration claim at the International Centre for the Settlement of Investment Disputes (ICSID), an arbitration panel of the World Bank. PMI alleged that two of Uruguay’s tobacco control laws violated a Bilateral Investment Treaty (BIT) with Switzerland. PMI brought the claim after legal challenges in Uruguay’s domestic courts by the Philip Morris subsidiaries had failed. The panel of three arbitrators published their ruling on July 8, 2016, dismissing all PMI’s claims and awarding Uruguay its legal costs ($7 million).  

The two “Challenged Measures” required:

1.      Large graphic health warnings covering 80% of the front and back of cigarette packets; and

2.      The Single Presentation Requirement (SPR) that limited each cigarette brand to just a single variant or brand type (eliminating brand families to address evidence that some variants can mislead consumers and falsely imply some cigarettes are less harmful than others).

PMI alleged that the 80% health warnings left insufficient room on the packs for it to use its trademarks and branding as they were intended, and the SPR meant it could not market some of its brands such as Marlboro Gold. PMI therefore alleged that Uruguay had breached the terms of the BIT because the Challenged Measures: Expropriated the property rights in PMI’s trademarks without compensation; were arbitrary as they were not supported by evidence to show they would work and so did not accord PMI with Fair and Equitable Treatment;  did not meet PMI’s Legitimate Expectations of a stable regulatory environment or to be able to use their brand assets to make a profit; and that the Uruguayan courts had not dealt properly or fairly with PMI’s domestic legal challenges such that there was a Denial of Justice.

Philip Morris sought an order for the repeal of the Challenged Measures and for compensation in the region of $25 million.

The tribunal’s findings

This highly anticipated award addressed a number of fundamental legal issues concerning the balance between investor rights and the space available for states’ to regulate for public health. While there is no doctrine of binding precedent in international arbitration law, the development of an investment treaty case law and jurisprudence means that the wider value of each award can be very significant. This ruling highlighted the importance of the WHO Framework Convention on Tobacco Control (FCTC) in setting tobacco control objectives and establishing the evidence base for measures, and confirmed that states therefore need not recreate local evidence.  It addressed the wide ‘margin of appreciation’ and deference provided to sovereign states in adopting measures or decisions concerning public health. The tribunal also identified that a state need not prove a direct causal link between the measure and any observed public health outcomes – rather that it was sufficient that measures are an attempt to address a public health concern and taken in good faith.

The ruling sets an extremely high bar for any foreign investor seeking to bring an investment arbitration challenge against a non-discriminatory public health measure that has a legitimate objective and that has been taken in good faith.

Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay [Uruguay] [July 02, 2013]

After passing a series of tobacco control laws, Uruguay instituted two additional regulations on tobacco packaging in 2009. The first requires graphic health warnings on 80% of the front and back of all tobacco products. The second restricts each brand to a single presentation, in order to prohibit brand variants that mislead consumers about the relative safety of tobacco products. Uruguay adopted these policies after the tobacco industry attempted to circumvent Uruguay’s ban on the use of the deceptive terms “light,” “low tar” and “mild” by using color-coded brand names such as “Marlboro Green (Fresh Mint).” Philip Morris affiliates challenged the regulations in Uruguay's domestic courts, but the Supreme Court upheld them as constitutional. 

In addition to the domestic constitutional challenge, Philip Morris affiliates are challenging the regulations as allegedly violating a bilateral investment treaty between Switzerland and Uruguay.  An arbitration panel, established under the International Centre on Settlement of Investment Disputes (ICSID), decided that it had jurisdiction to hear this case in July 2013 and instructed the parties to prepare substantive arguments in the case. The decision on jurisdiction did not discuss the merits of the case. 

Abal Hermanos, S.A. v. Uruguay [Uruguay] [November 17, 2010]

Abal Hermanos S.A., a PMI affiliate, challenged the constitutionality of Law No. 18256 arguing that it established an illegal delegation of powers to the Ministry of Health, which were used to unreasonably extend the health warnings to 80% of the principal display areas. According to the plaintiff, the health warning requirement was a violation of the right to property, including intellectual property. The Supreme Court rejected the challenge finding that the law was constitutional and that there was not illegal delegation but just a need to complement the law with the necessary regulations. The Supreme Court finds relevant that the challenged law is based in the FCTC, an international commitment undertaken by Uruguay.

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